Market Watch: New Home Sales Surge

(2/27/2014)

New home sales in January reached their highest level in nearly five-and-a-half years, a surprising development, especially in the midst of severe winter weather across much of the country. The Commerce Department reported yesterday that sales jumped 9.6% from December to a seasonally-adjusted annual rate of 468,000 units. It was a 2.2% increase over January 2013 sales.

Snow and ice had little effect on the Northeast as new home sales improved by 74% there. Sales also increased in the South (10%) and West (11%), while falling by 17% in the Midwest. The report mitigates many of the discouraging housing developments from the latter half of 2013, including sales of previously-owned homes, declines in building permits and an increase in mortgage rates.

The Commerce Department regularly revises the sales figures later, which leaves the potential for January’s new home sales to be downsized slightly. Nonetheless, the report points to an encouraging niche in the housing market for advertising specialty companies, who could target realtors, lenders, housing development companies and home builders leading into the normally busy spring season.

The only big worry among analysts forecasting gains in the housing market is the relatively lean inventory of homes, which could push prices higher and limit affordability. There is a current 4.7-month supply of new homes, where six months is typically a balanced figure for supply and demand.